nep-com New Economics Papers
on Industrial Competition
Issue of 2012‒10‒27
twenty-six papers chosen by
Russell Pittman
US Government

  1. Price Competition in a Duopoly Characterized by Positional Effects By Evdokia Dritsa; Eleftherios Zacharias
  2. Price Discrimination of Congestible Network Goods By Maxime Agbo; Marc Santugini; Jonathan W. Williams
  3. Network Games under Strategic Complementarities By Mohamed Belhaj; Yann Bramoullé; Frédéric Deroian
  4. A Game Theoretic Foundation of Competitive Equilibria with Adverse Selection By Nick Netzer; Florian Scheuer
  5. Market Structure and Pass-Through By Raphael Schoenle; Raphael Auer
  6. Introduction to the Handbook on the Economics and Theory of the Firm By Michael Dietrich; Jackie Krafft
  7. Baumol, Panzar, and Willig’s Theory of Contestable Markets and Industry Structure: A Summary of Reactions By Amavilah, Voxi Heinrich
  8. Price as a signal of product quality: some experimental evidence By Giovanni Mastrobuoni; Franco Peracchi; Aleksey Tetenov
  9. Persuasive Puffery By Archishman Chakraborty; Rick Harbaugh
  10. Shouting to be Heard in Advertising By Simon P. Anderson; André De Palma
  11. Step tolling with price sensitive demand: Why more steps in the toll makes the consumer better off By Berg, V.A.C. van den
  12. Preferential treatment in procurement auctions through information revelation By Domenico Colucci; Nicola Doni; Vincenzo Valori
  13. Information revelation in procurement auctions: an equivalence result By Domenico Colucci; Nicola Doni; Vincenzo Valori
  14. Dysfunctions of the patent system and their effects on competition By David Encaoua; Thierry Madiès
  15. Competition in the news industry: fighting aggregators with versions and links By Joan Calzada; Guillem Ordóñez
  16. News Aggregators and Competition Among Newspapers in the Internet By Doh-Shin Jeon; Nikrooz Nasr Esfahani
  17. Do Online Marketplaces Become More Efficient Over Time? By Andrey Fradkin
  18. Optimizing Click-through in Online Rankings for Partially Anonymous Consumers By Babur De los Santos; Sergei Koulayev
  19. e-Book Platform Competition in the Presence of Two-Sided Network Externalities By Yabing Jiang
  20. Failure to Launch in Two-Sided Markets: A Study of the U.S. Video Game Market By Zhou, Yiyi
  21. Can governments do it better? Merger mania and hospital outcomes in the English NHS By Propper, C; Laudicella, M; Gaynor, M
  22. An Economic Mechanism to Regulate Multispecies Fisheries By Sébastien ROUILLON (GREThA, CNRS, UMR 5113)
  23. Competition Between Sports Leagues: Theory and Evidence on Rival League Formation in North America By Che, XiaoGang; Humphreys, Brad
  24. Urban tourist complexes as Multi-product companies: Market segmentation and product differentiation in Amsterdam By Romao, J.; Neuts, B.; Nijkamp, P.; Leeuwen, E.S. van
  25. Does Competition Matter for Corporate Governance? The Role of Country Characteristics By Jean-Claude Cosset; Hyacinthe Y. Somé; Pascale Valery

  1. By: Evdokia Dritsa (Department of Economics, Athens University of Economics and Business); Eleftherios Zacharias (Department of Economics, Athens University of Economics and Business)
    Abstract: We examine the price decisions in a vertically differentiated duopoly where the decision to buy a good depends not only upon the intrinsic utility from consuming it but also upon the social attributes (prestige, uniqueness etc.) associated with its consumption. These social attributes are especially important in vertically differentiated markets. We show that when these attributes are not very strong, if their intensity increases, the profits of both firms increase. However, when these attributes are very important, if their intensity increases, the profits of the firm that offers a lower quality variant increase whereas the profits of the firm that offers the higher quality variant decrease. Our results have implications on the amount of persuasive advertising firms should conduct in such markets.
    Keywords: Vertical differentiation; positional externalities, snob effect; bandwagon effect.
    JEL: L11 D11 D43
    Date: 2012–10
  2. By: Maxime Agbo; Marc Santugini; Jonathan W. Williams
    Abstract: We study second-degree price discrimination for a congestible network good. We show that the seller does not always provide distinct contracts (i.e., it is not always optimal to price discriminate) and that it is more likely for the low-valuation buyer to be excluded. Because of the network externality through congestion, no buyer receives an efficient allocation. In particular, the high-valuation buyer might be offered a higher or a lower quality (relative to the first-degree price discrimination offer). Moreover, with congestion and for values of the parameters for which all types are serviced, consumer surplus under second-degree price discrimination may be greater than consumer surplus under no price discrimination.
    Keywords: Congestion, Network, Price Discrimination
    JEL: D40 D62 D86 L14
    Date: 2012
  3. By: Mohamed Belhaj (Centrale Marseille (Aix-Marseille School of Economics), CNRS & EHESS); Yann Bramoullé (Department of Economics, Université Laval and Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS); Frédéric Deroian (Department of Economics, Université Laval and Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS)
    Abstract: We study network games with linear best-replies and strategic complementarities. We assume that actions are continuous but bounded from above. We show that there is always a unique equilibrium. We find that two key features of these games under small network effects may not hold when network effects are large. Action may not be aligned with network centrality and the interdependence between agents' actions may be broken.
    Keywords: Network Games, Strategic Complementarities, Supermodular Games, Bonacich Centrality.
    Date: 2012–10
  4. By: Nick Netzer; Florian Scheuer
    Abstract: We construct a fully specified extensive form game that captures competitive markets with adverse selection. In particular, it allows firms to offer any finite set of contracts, so that cross-subsidization is not ruled out. Moreover, firms can withdraw from the market after initial contract offers have been observed. We show that a subgame perfect equilibrium always exists and that, in fact, when withdrawal is costless, the set of subgame perfect equilibrium outcomes may correspond to the entire set of feasible contracts. We then focus on robust equilibria that exist both when withdrawal costs are zero and when they are arbitrarily small but strictly positive. We show that the Miyazaki-Wilson contracts are the unique robust equilibrium outcome of our game. This outcome is always constrained efficient and involves cross-subsidization from low to high risk agents that is increasing in the share of low risks in the population under weak conditions on risk preferences.
    JEL: C73 D02 D82 D86 G22 H1 L1
    Date: 2012–10
  5. By: Raphael Schoenle (Brandeis University); Raphael Auer (Swiss National Bank)
    Abstract: In this paper, we examine the extent to which market structure and the way in which it affects pricing decisions of profit-maximizing firms can explain incomplete exchange rate pass-through. To this purpose, we evaluate how pass-through rates vary across trade partners and sectors depending on the mass of firms affected by a particular exchange rate shock and the distribution of firms' market shares in the sector. In the first step of our analysis, we decompose bilateral exchange rate movements into broad US Dollar (USD) movements and trade-partner currency (TPC) movements. Using micro data on US import prices, we show that the pass-through rate following USD movements is up to four times as large as the pass-through rate following TPC movements. Second, we show that the rate of pass-through following TPC movements is increasing in the trade partner's sector-specific market share, while the USD pass-through rate is decreasing in the market share of domestic producers. In the third step, we draw on the parsimonious model of oligopoly pricing featuring variable markups of Dornbusch (1987) and Atkeson and Burstein (2008) to show how the distribution of firms' market shares within a sector affects the trade-partner specific TPC pass-through rate. We calibrate this model using our exchange rate decomposition and information on the origin of firms and their market shares. We find that the calibrated model can explain a substantial part of the variation in import price adjustments and pass-through rates across sectors, trade partners, and sector-trade partner pairs.
    Date: 2012
  6. By: Michael Dietrich (University of Sheffield - University of Sheffield); Jackie Krafft (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - CNRS : UMR7321 - Université Nice Sophia Antipolis (UNS))
    Abstract: The Handbook on the Economics and Theory of the Firm explores both the economics of the firm and the theory of the firm, two areas which were traditionally treated separately in the literature. On the one hand, the former refers to the structure, organization and boundaries of the firm, while the latter is devoted to the analysis of behaviours and strategies in particular market contexts. The novel concept underpinning this authoritative volume is that these two areas closely interact, and that a framework must be articulated in order to illustrate how linkages can be created. This introduction is dedicated to comprehensively develop this interpretative framework.
    Keywords: Economis and theory of the firm, Handbook
    Date: 2012–08–24
  7. By: Amavilah, Voxi Heinrich
    Abstract: This paper summarizes reactions to the theory of contestable markets and industry structure. The reactions came immediately after the theory was published. The summary finds that the proposed theory stands on sound grounds. However, empirically the theory leaves much to be desired especially for practical policy in developing countries.
    Keywords: Baumol-Panzar-Willig; perfectly contestable; perfectly sustainable; Ramsey welfare criteria; constestable markets; industry structure
    JEL: D21 L16 L11 D63 L22 D43 L29
    Date: 2012–09–16
  8. By: Giovanni Mastrobuoni; Franco Peracchi; Aleksey Tetenov
    Abstract: We study the determinants of the choice between wines in wine tasting experiments where about 200 nonprofessional tasters were asked to indicate which one of the tasted wines they preferred and which one they would buy. In addition to actually tasting several wines, which differ in terms of their intrinsic quality, tasters were randomly given fictitious information about their price and the environment where the grapes were grown and the wines produced. We exploit the randomness of these signals to weigh their importance relative to the intrinsic quality of the wine using a random utility model. The model combines separate information on which wine the tasters prefer and which one they would buy to identify the signaling value of price. We are able to separate the positive signaling effect of price from its negative effect through the budget constraint. Consistent with Wolinsky (1983) and Milgrom and Roberts (1986), we find that tasters use price as a signal about the quality of the product. The signaling effect is strongly non-linear and depends on the tasters' experience.
    Keywords: Pricing; signalling; product quality; wine ratings
    JEL: D11 D12 D82
    Date: 2012
  9. By: Archishman Chakraborty (Baruch College, City University of New York); Rick Harbaugh (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)
    Abstract: Sellers often make explicit or implicit product claims without providing evidence. We show that such "puffery" of product attributes through pure cheap talk is credible and helps buyers make a better decision. Puffing one attribute of a product leads buyers to positively update their impression of the product on that attribute, but also to negatively update their impression of the product on other attributes. Such updating pulls in buyers who value the puffed attribute, but pushes away other buyers who value other attributes. When the initial probability of a sale is low, there are more buyers to pull in than to push away, so the seller benefits from puffery. The legal distinction that permits puffery about subjective claims, but precludes puffery about objective facts, is shown to be consistent with the differences between cheap talk and persuasion models of communication.
    Keywords: cheap talk, discrete choice, sales talk, comparative advertising, negative advertising, unique selling point, privacy
    JEL: D82 L15 C72 D72
    Date: 2012–10
  10. By: Simon P. Anderson (Department of Economics, University of Virginia - Uniiversity of Virginia); André De Palma (ENS Cachan - Ecole Normale Supérieure de Cachan - École normale supérieure de Cachan - ENS Cachan)
    Abstract: Advertising competes for scarce consumer attention, so more profitable advertisers send more messages to break through the others' clutter. Multiple equilibria can arise: more messages in aggregate induce more "shouting to be heard", dissipating profit. Equilibria can involve a small range of loud shouters or large range of quiet whisperers. All advertisers prefer there to be less shouting. There is the largest diversity in message levels for a middling width of advertiser types: both a very wide or very narrow width have only one message per advertiser. The number of advertisers at each message level decreases with the level if the profit distribution is log-convex. Increasing the cost of sending messages can make all advertisers better off. A new technique is given for describing multiple equilibria, by determining how much examination is consistent with a given marginal advertiser.
    Keywords: information overload; congestion; advertising; lottery; junk mail; e-mail; tele-marketing; multiple equilibria; ad caps
    Date: 2012–10–15
  11. By: Berg, V.A.C. van den
    Date: 2012
  12. By: Domenico Colucci (Dipartimento di Matematica per le Decisioni - Università degli Studi di Firenze); Nicola Doni (Dipartimento di Scienze dell'Economia - Università degli Studi di Firenze); Vincenzo Valori (Dipartimento di Matematica per le Decisioni - Università degli Studi di Firenze)
    Abstract: We study a model of procurement auctions in which information policies can be used to treat two heterogeneous suppliers asymmetrically. The buyer is shown to be better off revealing information about her preferences to the weak supplier only, when there is a sufficient cost difference between the weak and the strong. Conversely, when the two competitors have similar cost structures, for the buyer it is best to disclose her preferences publicly.
    Keywords: procurement, information revelation, discriminatory policy, asymmetric auctions
    Date: 2012–10
  13. By: Domenico Colucci (Dipartimento di Matematica per le Decisioni - Università degli Studi di Firenze); Nicola Doni (Dipartimento di Scienze dell'Economia - Università degli Studi di Firenze); Vincenzo Valori (Dipartimento di Matematica per le Decisioni - Università degli Studi di Firenze)
    Abstract: Procurement auctions often involve quality considerations as a determinant of the final outcome. When qualities are the procurer’s private information then various information policies may be used to affect the expected outcome. For auctions with two cost heterogeneous suppliers, this work defines a notion of duality between pairs of policies, and shows that dual policies are revenue equivalent.
    Keywords: procurement, information revelation, discriminatory policy, asymmetric auctions
    Date: 2012–10
  14. By: David Encaoua (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Thierry Madiès (Department of Economics - University of Fribourg - University of Fribourg)
    Abstract: In this paper the authors argue that the contemporary tensions between patents and competition no longer reside in the traditional trade-off between the exclusionary right given to an inventor to encourage innovation, and the welfare loss induced by the market power associated to this right. They rather consider that the three following distortions of the patent system create important conflicts between patents and competition on the product market, the technology market, and the innovation market. The first distortion concerns the existence of dubious or weak patents. Too many patents are granted to applications of bad quality, in terms of the usual patentability criteria. This increases the uncertainty attached to patents, reduces the credibility of the system and calls into question the justification of the patent as a protective mechanism. Second, the configuration of a patent, originally designed in the context of an isolated innovation, is not adapted to the context of sequential or intergenerational innovations, in which an innovation relies on earlier patented inventions. Even though sequential innovation calls for fine delimitations between successive generations of innovators, the strengthening of intellectual property, including the extension of the patentable subject matters opened the door to opportunistic behavior and adversely affected the needed flexibility to favor technological exchanges. Third, the emergence of complex technologies, in which the use of a large number of fragmented patents is necessary to produce a new product, implies the necessity to coordinate the various patent holders' behavior. The potential entrants in these complex technologies are struck by the coordinated behavior of the patent holders, and this is illustrated in different settings such as the pooling of complementary patents and the licensing of essential patents by the members of a Standard Setting Organization. Very often, patents serve to create ambushes or to capture unjustified rents through excessive license fees, which in turn create barriers to entry for new competitors in the innovation market. Two important consequences of these distorsions are derived. On the one hand, the resolution of these conflicts cannot rely exclusively on the application of the antitrust law. Even if these distortions seriously affect competition in the three markets of products, technology and innovation, antitrust rules are unable to resolve the specific effects rose from distortions of the contemporary patent system. On the other hand, the existence of these distortions leads to a very expensive judicial implementation of the patent system. The multiplication of the conflicts due to a strategic use of patents, particularly in the information and communication technology, in biotechnology and medicine raises the question of the adaptation of the legal status of patents to the contemporary technological developments.
    Keywords: probabilistic right; private settlement; sequential innovation; patent pools; technological standard setting organization.
    Date: 2012–10
  15. By: Joan Calzada (Departament de Política Econòmica, Universitat de Barcelona); Guillem Ordóñez (Departament de Política Econòmica, Universitat de Barcelona)
    Abstract: We analyze the linking and versioning strategies of a media firm when facing competition from blogs, search engines and news aggregators. First, we show that when the publisher competes against a blog it is less likely to release a “fighting version” if this generates significant spillovers for its rival. Second, we analyze in which situations a publisher will accept to offer part of its contents to a news aggregator in exchange for financial compensation. We explain that an agreement is possible when the aggregator is not overly dependent on the firm’s contents. Finally, we show that when the firm competes against a search engine, its linking and versioning strategies depend on the amount of traffic it receives from its competitor. The firm can use the search engine as its own low quality version and as a mechanism to expand its market since it gives access to many contents.
    Keywords: Product segmentation, versioning, linking media market, search engines, news aggregators, Internet
    JEL: D83 D85 L12 L22 L86 M31
    Date: 2012–09
  16. By: Doh-Shin Jeon (Toulouse School of Economics); Nikrooz Nasr Esfahani (Toulouse School of Economics)
    Abstract: In this paper, we study how the presence of a news aggregator affects competition among (horizontally differentiated) newspapers in the Internet. For this purpose, we build a model of multiple issues which allows each newspaper to choose quality on each issue. Our model provides a micro foundation for the service offered by the aggregator and captures both the "business-stealing effect" and the "readership-expansion effect" of the aggregator. We find that the presence of the aggregator leads each newspaper to specialize in terms of news coverage. In this case, its presence changes quality choices from strategic substitutes to strategic complements. In the case of symmetric newspapers, this leads to an increase in the quality of newspapers and an increase in consumer surplus, with an ambiguous effect on newspapers’ profits. In the case of asymmetric newspapers, quality can increase or decrease depending on the sensitivity of advertising revenue to quality.
    Keywords: Newspapers, News Aggregator, Internet, Quality, Strategic Substitutes, Strategic Complements, Advertising, Business-stealing, Readership-expansion, Opting Out.
    JEL: D21 D43 L13 L82
    Date: 2011–07
  17. By: Andrey Fradkin (Department of Economics, Stanford University)
    Abstract: An increasing proportion of transactions in two-sided markets are being mediated by online platforms. Presumably, agents choose to use online platforms because they have a lower transaction cost technology compared to alternatives. I use data from a growing online platform that matches travelers and hosts to study matching and transaction costs on online platforms. I show that the matching probability for guests has increased by 18% over a span of two years on the platform. I then show that the increase in efficiency holds even when controlling for the search intensity of guests, the change in the composition of transactions and aggregate market conditions at the time of search I demonstrate that guests are elastic with respect to the time it takes to make a transaction. I then investigate one potential reason for why guests are more successful over time: a decrease in the transaction costs required to book. I show that the time to book and the amount of communication required to book on the platform are falling over time. I then consider three possible explanation hypotheses for the reduction in required transaction costs: learning, reputation building and platform policy. I show that all three are likely important for explain the increased efficiency over time.
    Keywords: Two-Sided Platforms, Matching, Search, Marketplaces, Frictions, Transaction Costs, Learning, Reputation, Internet Economics
    JEL: L1 L2 J6 D82 D83 D23 O31 O33
    Date: 2012–10
  18. By: Babur De los Santos (Department of Business Economics and Public Policy, Indiana University Kelley School of Business); Sergei Koulayev (Keystone Strategy)
    Abstract: While considering differentiated products for purchasing decisions, it is costly for consumers to obtain the necessary information to weigh the various alternatives. The vast amount of information available online has revolutionized the way firms present consumers with product options. Presenting the best alternatives reduces search costs associated with a consumer finding the right product. Heterogeneity in consumers' preference for products with multiple attributes makes it challenging to present a relevant ranking, especially when important characteristics, such as price, differ between the formation of the underlying ranking and the consumer's search process. We use novel data on consumer click-stream behavior from a major web-based hotel comparison platform to estimate a random coefficient discrete choice model. We are then able to infer consumer preferences regarding a set of product attributes and propose an optimal ranking tailored to anonymous consumers with different price sensitivity. We are able to customize rankings by relating price sensitivity to their request parameters, such as the length of stay, number of guests, and day of the week of the stay. In contrast to a myopic popularity-based ranking, our model accounts for the rapidly changing prices that characterize the hotel industry, consumers' expected search strategies including result sorting and filtering, and consumer heterogeneity. The platform must determine which hotel ordering maximizes consumers' click-through rates (CTR) based on the information available to the platform at that time, its assessment of consumers' preferences, and the expected consumer type based on request parameters. We find that consumers' CTRs more than double when consumers are provided consumers with customized rankings that refl ect the price/quality trade-off inferred from the consumer's request parameters. We show that the optimal ranking results in consumers' welfare 173 percent greater on average than in the original ranking.
    Keywords: consumer search, hotel industry, popularity rankings, platform, collaborative fitering, click-through ates, customization
    JEL: D43 D83 L13
    Date: 2012–05
  19. By: Yabing Jiang (Lutgert College of Business, Florida Gulf Coast University)
    Abstract: The success of the Kindle e-book platform and the increased popularity of e-books among members of the reading community have attracted extensive interest in the high-tech industry. New platform providers are jumping in the market to compete for device and e-book sales. In this paper, we model the direct competition in the e-book platform market through a two-sided network externality model. We show that publishers can influence consumers’ e-book platform adoption decisions and the total e-book sales by strategically deciding the size of contents available on each platform.
    Keywords: analytical modeling, e-book technology, network externality, platform competition, product differentiation, two-sided market
    JEL: D43 D62 L11 L13 L82 M15
    Date: 2012–09
  20. By: Zhou, Yiyi
    Abstract: In the dynamic two-sided market environment, overpricing one side of the market not only discourages demand on that side but also discourages participation on the other side. Over time, this process can lead to a death spiral. This paper develops a dynamic structural model of the video game market to study launch failures in two-sided markets. The paper models consumers’ purchase decisions for hardware platforms and affiliated software products and software firms’ entry and pricing decisions. This paper also develops a Bayesian Markov Chain Monte Carlo approach to estimate dynamic structural models. The results of the counterfactual simulations show that a failed platform could have survived if it had lowered its hardware prices and that it could not have walked out of the death spiral if it had subsidized software entry.
    Keywords: Bayesian Markov Chain Monte Carlo (MCMC) Estimation; Failure to Launch; Two-Sided Market; Indirect Network Effect; Forward-Looking Consumer; Video Game Market
    JEL: L11 L68 C61 C11
    Date: 2012–10–16
  21. By: Propper, C; Laudicella, M; Gaynor, M
    Date: 2012–01
  22. By: Sébastien ROUILLON (GREThA, CNRS, UMR 5113)
    Abstract: We study the management of a multispecies fishery, exploited under a non-selective harvesting technology. We construct an economic mechanism to regulate the fishery. Under a large class of models, capable of accounting for imperfect competition, congestion externalities, pro-social motivations and/or resource amenities, we show that any (stationary Markovian) Nash equilibrium of the differential game induced by our economic mechanism implements an optimal utilization of the resource. Using a specification of the general model, which adapts Clemhout and Wan (1985) and can be solved explicitly, we exhibit a (stationary Markovian) Nash equilibrium of the differential game, proving existence of (stationary Markovian) Nash equilibria within this environment.
    Keywords: Natural resource; Fish war; Multispecies; Differential game; Mechanism design.
    Date: 2012
  23. By: Che, XiaoGang (University of Alberta, Department of Economics); Humphreys, Brad (University of Alberta, Department of Economics)
    Abstract: We analyze the formation of rival leagues in professional team sports, one of the least studied forms of competition in sport. We survey the economic history of professional sports leagues in North America and develop stylized facts about rival league formation and develop a game-theoretic model of entry of a rival league to an existing market to explain these stylized facts. This model accounts for the strategic interaction between the incumbent and rival league and costs associated with acquiring new players from the incumbent league. The model predicts that either expanding to deter rival league formation, or allowing a rival league to form and then merging with that league is a subgame perfect equilibrium, and that incumbent leagues will pay players relatively high salaries to deter entry by a rival league.
    Keywords: professional team sports; rival league; monopsony
    JEL: D42 L12 L83
    Date: 2012–10–01
  24. By: Romao, J.; Neuts, B.; Nijkamp, P.; Leeuwen, E.S. van
    Date: 2012
  25. By: Jean-Claude Cosset; Hyacinthe Y. Somé; Pascale Valery
    Abstract: We investigate the empirical relation between competition and corporate governance and the effect of country characteristics on this relation. We find that competition is associated with strong corporate governance, but only in less developed countries. We next examine the impact of corporate governance on firm value given the level of competition. We find that competition and corporate governance appear to be complements in explaining firm value in developing countries, while in developed countries they are substitutes.
    Keywords: Product market competition, Corporate governance, Economic and financial development, Investor protection
    JEL: G30 L00 O16
    Date: 2012
  26. By: Lilia Cavallari (Università degli Studi di Roma Tre)
    Abstract: This paper provides a DSGE model with firm entry. Simulations show that the model matches the synchronization of markups and entry observed in the data while at the same time reproducing empirically plausible moments for key macroeconomic variables. Sticky prices are essential for these results.
    Keywords: endogenous entry, firm dynamics, monopolistic competition, market power, markups
    JEL: E31 E32 E52
    Date: 2012

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